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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

Which of the following is a defining feature of a perfectly competitive market?

A perfectly competitive firm is a price taker, because it sells a homogeneous product and supplies only a tiny share of total market output. The market price is set by overall demand and supply, so no individual seller can change it.

  1. AEach firm is a price taker because it supplies a very small share of a homogeneous productCorrect
  2. BEach firm sets its own price by differentiating its product
  3. CA single seller controls the entire market supply
  4. DEntry into the industry is blocked by legal barriers

Explanation

In perfect competition there are many buyers and sellers selling identical products, so no single firm can influence the market price and each takes the price as given. Price-setting through differentiation belongs to monopolistic competition, a single seller describes monopoly, and blocked entry is a monopoly feature.

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